Finance and Lending

Coronavirus, PPP and Other Considerations for Your Company’s 2020 Taxes

March 10, 2021
The C2FO Team
Woman at computer with tax forms

Last year was unprecedented. The same may be true for your 2020 taxes if the Paycheck Protection Program (PPP) and other factors come into play. This quick guide highlights what to expect as tax filing season for US businesses approaches.

If right now you’re thinking, “How can it already be tax time again?” — you’re likely one of the many business owners or individuals who didn’t file your 2019 returns until July 2020, as allowed by the Internal Revenue Service due to the pandemic. Perhaps you may have filed even later with an extension.

And now, with the 2020 tax year filing deadlines upon us, it’s that time of year, yet again. 

It may comfort you to know that, as COVID-19 continues to affect the economy, the IRS and other authorities have shown some flexibility with how you can file your 2020 returns.

To that end, here’s a helpful “what you need to know” round-up as tax filing season accelerates and your tax returns take shape. To be fully prepared for filing your 2020 taxes, we recommend that you consult your tax advisor or other qualified tax professional. 

Tax filing deadlines

Returns are due:

  • Monday, March 15 for small businesses that are classified as an S-corporation or partnership.
  • Monday, May 17 is the new tax deadline for sole proprietors and individual taxpayers. The IRS announced in March that it was pushing back the traditional April 15 deadline to help taxpayers “navigate the unusual circumstances related to the pandemic.” However, April 15 is still the due date for businesses’ first quarterly 2021 tax estimate.
  • Various other dates may apply for small businesses classified as corporations, per their charter.
  • Due to the winter storm disasters in Texas and Oklahoma, the IRS has extended tax filing deadlines for individuals and businesses in those states until June 15.

To stay up-to-date, you can consult the 2021 IRS Tax Calendar for important extension deadlines and requirements.

Filing for extensions

Automatic six-month extensions are available by filing a Form 4868. Your estimated 2020 tax remainder is also payable then; interest and penalties may apply when your return is filed. 

Businesses and individuals are expected to file for extensions in record numbers this year due to the many tax-impacting nuances resulting from the pandemic. Despite the complexity of completing 2020 returns, experts largely agree that if you have all the information you need, it’s best to file now rather than kicking the tax-filing can down the road. Your tax preparer will likely appreciate that, too, since many of them spent the summer of 2020 completing returns due to the universal July 15 filing deadline. 

Deferred payroll taxes now due

The Coronavirus Aid, Relief and Economic Security (CARES) Act was quickly developed following the pandemic’s onset and was passed into law on March 27, 2020. It provided financial relief to individuals in the form of direct payments. Many businesses benefited from forgivable loans that qualified under PPP and relaxed regulations. The PPP loans helped business owners cover immediate and ongoing expenses like rent, utilities and payroll in an effort to keep their businesses open in the face of reduced operations.

The CARES Act impacted not only the extended tax filing deadlines in 2020, but also the “if, how and when” of handling any deferred tax withholdings. For example, businesses were allowed to defer withholding their employees’ share of payroll taxes on wages paid from Sept. 1 to Dec. 31, 2020. Though first designed as a reprieve to give employees more take-home pay, or employers more time to make related deposits, those deferred withholdings may need attention now, or at least renewed awareness. Of note: April 30 is the first due date for payment of any deferred payroll taxes. By April 30, employers must also report current-year payroll withholding on Form 941 and affiliated forms.

The impact of PPP on your taxes

The biggest wildcard as you file for 2020 may be how a PPP loan, if you received one last year, will affect your return and any taxes due. Though designed to preserve jobs and businesses when the pandemic began — and as the next wave continues — there can be downstream effects from the loan forgiveness application process, including carefully tracking exactly how you used the PPP funds your business received. 

To receive forgiveness on a PPP loan, your business must have used the funds within a 24-week period after receiving the loan on the following eligible expenses: 

  • Payroll costs (payroll must make up at least 60% of your PPP expenses) 
  • Mortgage interest payments
  • Utility payments
  • Rent payments

One big takeaway about PPP as you prepare your 2020 taxes is that federal and state treatments of the loans and related expenses can differ. Specifically:

  • The revenue from forgiven loans is tax-exempt at the federal level but may or may not be at the state level.
  • Expenses (rent, payroll and utilities) paid with forgiven loan revenue are deductible at the federal level but may or may not be at the state level.

Click here for a map and table showing how your state treats forgiven loans and the expenses they were intended to cover.

The win-win for businesses is that Congress decided to not tax the “income” of a forgiven PPP loan, while also allowing loan recipients to treat any expenditures using PPP money as tax-deductible. This flexibility ensures that receiving and spending a PPP loan does not negatively affect your bottom line.  

There are other moving-target factors that may contribute to the impact that PPP loans or other government loans have on your 2020 taxes. These include:

  • When loan forgiveness is sought or approved
  • If you take another PPP loan, when available, and
  • How an Economic Injury Disaster Loan (EIDL), which is not forgivable, meshes with your business and finances.

In conclusion 

The year 2020 was unusual and the pandemic continues to have an influence on taxpayers into 2021 as the IRS has once again extended its April 15 deadline for individuals. 

The only certainty is that, ultimately, Uncle Sam will get his share. For your business, the best tactic is to stay in touch with your tax professional to keep track of any additional issues affecting the reporting and filing of your 2020 taxes.

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